The Challenges and Benefits of Working with Brokers

You've heard the horror stories about brokers who all of a sudden stopped answering the phone, and disappeared after the loads were delivered but before the carriers got paid‚ leaving thousands (and thousands) of dollars of freight bills unpaid.

But you likely also know drivers who, if not for a broker finding a load for them, would have driven empty (or not at all) to get home in time for an important event.

So, are brokers good or bad?

What are Brokers?

A broker connects shippers and carriers. They do not own the freight nor the equipment that moves that freight. They do not load, move, or unload the freight. A broker coordinates. This includes necessary communication and helping to resolve any problems with the shipments.

Shippers pay brokers to help find carriers to ship their freight. The broker takes the difference between what a shipper is willing to pay to move the freight, and what a carrier is willing to be paid to move the freight. That margin varies. A gross margin of twenty-five to thirty-five percent is common but it could be lower or higher.

For instance, the shipper agrees to pay the broker $2,800 to move a load. The shipper's price is set. The broker's margin increases as the rate paid to the carrier decreases. At a 25% margin, the carrier would be paid $2,100 and the broker would retain $700 for the $2,800 shipment.

Some brokers operate as a one-person business. Other broker companies are staffed with what seems to be a legion of people. And many brokers fit somewhere in-between. Often brokerage operations are a subset of a larger business, such as a 3PL.

Regardless of size, the basic functions are the same. Brokers link shippers and carriers to move loads. That's it. How they do it -- how they use technology, etc. -- varies, but the essential function does not change.

As in every profession, there are good and bad brokers. Below we talk more about how to distinguish between them. But first, why consider using a broker?

The Advantages of Working with Brokers

The primary advantage, from a carrier's perspective, is the broker aggregates loads from many different shippers. This makes it more likely that the brokers has a load that fits a carrier's situation on a given day.

How brokers get the loads is important to understand. They are basically an extension of the shipper. Some shippers send all their loads to a broker (or set of brokers). In these cases, the only way to move a load with that shipper is through a broker. Other shippers only send a portion of the loads to a broker -- either the loads they have difficulty covering or if they get really busy or are short personnel. These are spot type loads. (They can pay very well, especially if they are last-minute.)

From the shipper's perspective, the broker is doing work that the shipper would have to do if the broker were not there. The shipper is either willing to pay more to move those broker shipments or the broker has convinced the shipper the loads can be moved at the same (or lower) price as the shipper could move without the broker. And, in some cases, the shipper agrees to pay the market rate paid the carrier plus a commission for the broker.

With the different types of ways brokers are used by shippers, you can see why some brokered freight pays well and other loads pay poorly.

Some other valuable services a broker can provide besides the loads themselves:

Save Time. Even with the benefits of modern technology, it takes time to find and book loads. The more time spent looking for loads, the less time spent moving them.
Less Paperwork. One contract with a broker can cover shipments from many shippers and eliminate the need for multiple contracts or rate agreements with those shippers.
Recurring Shipments. Some brokers have a set book of business they handle.
Intermediary. Sometimes when there are problems or challenges, such as getting an appointment time, it helps to have some else (the broker) take the time to work on them so you can focus on other things. Besides, this is part of what the broker is being paid for.
Individual Needs. A good broker learns what carriers and drivers desire. Where a driver likes to go, where home is, the type of freight the driver prefers, etc.

The Disadvantages of Working with Brokers

No one works for free, nor should they. Brokers take a percentage of each load's revenue in exchange for matching a shipper to a carrier. That is the main disadvantage of working with a broker: they are like a toll booth. You don't have to travel on the highway they control, but if you do there is a cost.

If you could get an equivalent load without going through a broker, you would make more money moving it.

Some other reasons carriers might avoid particular brokers:

Payment time. Most brokers have Net 30 payment terms, so you will not be paid until a full month after you've delivered the load. (See our post on factoring for thoughts on getting paid quickly.)
Rate Negotiations. Most loads will be posted with a low price or no price at all. To earn a fair rate, you'll be expected to know current market trends and negotiate for each load.
Double brokering. This is when the usual shipper-broker-carrier chain has an extra link: shipper-broker-broker-carrier. It extends the chain of people who must get paid, and is often associated with fraudulent behavior.

Choosing Which Brokers to Work With

Unfortunately, not everyone who claims to be a broker is one.

Every legitimate broker must be licensed, obtain a USDOT number, and have freight broker authority from the Federal Motor Carrier Safety Administration (FMCSA) along with a BMC-84 Surety Bond (minimum amount of $75,000). A good starting place to check on these is the FMCSA website. Also, the broker should be registered with the Unified Carrier Registration.

Operating a freight brokerage is not easy. It requires not only knowledge of market rates and trends, but also relationships with shippers and carriers. Brokerages go out of business as quickly as carriers do, so it is advised to only work with established, reputable brokers that you trust.

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